Strategic Business Model For Telecommunication Companies in The Philippines
Strategic Business Model For Telecommunication Companies in The Philippines
ISSN 2286-4822
www.euacademic.org
Abstract:
The study was conducted to perform an environmental
scanning analysis for the telecommunications industry in the
Philippines.
To
measure
the
present
situation
of
the
telecommunications companies SMART Communications and Globe
Telecom - focus group discussion, in-depth interviewing and document
analysis were done. Using Porters Five Forces Model, the forces 1)
rivalry among existing firms, 2) bargaining power of buyers and 3)
suppliers are considerably high while 4) the threat of substitutes is
moderate and 5) the threat of new entrants is low because of the
oligopolistic nature of the industry. Furthermore, a SWOT analysis
was utilized to analyze the internal and external factors affecting the
industry. The strengths include: widely known brand names, cuttingedge fiber optics technology, high growth rate of the industry and huge
demand of telecommunications subscribers. On the other hand,
weaknesses include: poor telecommunications infrastructure and late
adopter of new technology. In terms of the external factors,
opportunities include: new technological products available in the
market, value-added services, and increasing demand for mobile
banking while the threats are: regulation of the NTC, heightened
1
1. Introduction
The advent of technology all over the world triggered
humongous changes in how people behave and act. Major
advances in communication, information processing, and
transportation technology started at the end of World War II.
The explosion of the use of the Internet and the World Wide
Web paved the way for faster communication and transaction
(Hill, 2010). Because of technology, people can easily transfer
information from one location to another and have the capacity
to tell to the world their sentiments and commentaries. Today,
everything is instant. Messaging is instant, communication is
instant, and even building relationship is instant! Thus,
technology changed the way people live.
Because of the massive growth and penetration of
technological products to peoples lives, it becomes an
imperative to adopt with different technological changes
happening in the environment. One of the greatest outputs of
technology is the birth of mobile or cellular phones.
Communication is now much faster because of these
advancements. In a research conducted by Pew Research
Centres Internet and American Life Project March 15 to April
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the possible reaction of the rivals to its own pricing, output, and
advertising decision (McConnell, Brue, & Flynn, 2009). This
hinders new entrants to penetrate the growing but stiff
competition in the telecommunication industry.
Economies of scale is another factor why the threat of
new entrants is low. It is an important entry barrier for
telecommunication companies because the two existing firms
have sufficient sales to achieve economies of scale but new
entrants would have such a small market share that they could
not do so. These new entrants would then be high-costs
producers/suppliers and as such they could not survive. The
large capital expenditure for capital the cost of obtaining
necessary plant and equipment is a huge entry barrier.
Moreover, telecommunication companies can prelude the entry
of new competitors through pre-emptive and retaliatory pricing
and advertising strategies (McConnell et al, 2009).
The retaliation by the existing telecommunication
companies signifies pressure for possible new entrants since
these existing firms projects an established network presence
that causes economies of scale. The products and services
offered by Smart Communications and Globe Telecom are
offered in the market in such that the new entrants will have
hard time in the competition. Product bundling strategies are
very common bundle broadband, voice, wireless, video and
other emerging technologies to remain competitive in the
industry.
5.1.2. Threat of Substitutes (Moderate)
The propensity of consumers to substitute is quite moderate in
the telecommunication industry. The presence of broadband
and Internet companies such as Google, Viber, Magic Jack, and
Skype to offer telephony services for international calling and
messaging and PC-to-PC domestic calls poses a moderate threat
in the industry. The price of Viber and Skype for instance is
free. A consumer just simply needs to download the application.
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Figure
2.
Level
of
Competitiveness
Telecommunication Companies
of
the
Philippine
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Figure
3.
Internal
Factors
Telecommunication Companies
Affecting
the
Philippine
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5.2.2. Weaknesses
Poor Telecommunication Infrastructure
The infrastructure needed by telecommunication companies
entails huge amount of investment. One of the sad facts about
telecommunication infrastructure in the Philippines is its slow
internet connection, a service also provided by the two players
in the market. The average webpage loading speed on desktops
in the Philippines was 15.4 seconds, the second slowest behind
20.3 seconds of Indonesia in a Google study based on the report
of Bloomberg, an international news agency (Mendoza, 2012).
In a survey by OpenSignal, a company that created impartial
coverage maps of mobile networks, the Philippines was
identified as the poorest and slowest LTE (Long Term
Evolution) broadband Internet access and coverage in the globe
(Luces, 2014). In 2013, the Philippines lagged behind Asian
neighbours in average Internet speed in according to the
statistics of Akamai, a US-based Internet content delivery
network. The global average for Internet speed is 3.1 Mbps but
the Filipino subscribers only experience 1.4Mbps, very far from
the international average (Hughes, 2013).
Late Adopter of New Technology
In 2012, 63% of telecommunication companies across Asia had
offered 4G mobile data services. This move proves that mobile,
Internet, and LTE are the most vital things in the
telecommunication industry in the continent. It is true that
LTE adoption in developed nations such as Japan and Korea is
doing well but emerging markets including the Philippines is at
a slow pace. With approximately 34.6 million LTE subscribers
in Asia-Pacific region of the aggregate 3.45 billion subscribers
in the region in the first quarter of 2013, 4G is far from
commonplace (Magdirila, 2013). The LTE technology was
commercially introduced in December 2009 by TeliaSonera in
Norway and Sweden and came to the U.S. market in 2010
(Pica, 2013). In the Philippines, it was only in 2013 when LTE
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2013 that the mobile banking users will register at 590 million
(The Philippine Star, 2013).
Figure
4.
External
Factors
Telecommunication Companies
Affecting
the
Philippine
5.2.4. Threats
Regulation of the Telecommunication Industry by
National Telecommunication Commission (NTC)
In the Philippines, the government through NTC regulates the
telecommunication industry. The heavy regulation imposed by
NTC means a major threat for telecommunication companies.
Heightened Competition
The advent of digital wireless and a multiple increase in the
allocation of spectrum in mobile communication really
heightened the war in the telecommunications industry. It is
evident that technological advancement and competitive
development provided an increasing complex array of networks
offering competing and complementary services. The war
between SMART Communications and GLOBE Telecom is
becoming stiffer. In 2012, both players claimed to be number
one in the postpaid segment SMART Communication by the
number of subscribers while GLOBE Telecom by revenue per
subscriber in the first three months of 2012 (Viconti, 2012).
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